A major oil deal struck by ExxonMobil with the Nigerian government is
being probed by Nigeria’s Economic and Financial Crimes Commission, a law
enforcement agency that investigates high-level corruption.

ExxonMobil’s deal highlights the need for the U.S. Securities and
Exchange Commission to create strong transparency rules for U.S.-listed oil,
gas and mining companies under Section 1504 of the Dodd-Frank Act, which are due
for release by 27th June 2016.

The new U.S. rules will require extractive companies to disclose details of
the hundreds of billions of dollars they pay to governments every year, such as
taxes, royalties and licence fees, wherever they operate in the world.

To date there has been very little transparency for extractive
companies’ payments to governments, leaving these vast public revenues
vulnerable to corruption. The U.S. rules aim to deter graft by enabling citizens
to monitor payments and hold their governments and companies to account for how
the money is used.

Yet Exxon, a company being investigated for allegedly misleading the
public and investors about the risks of climate change,[i] has been
calling on the SEC
to prevent the U.S. transparency rules from shedding light on precisely the
kind of deal it struck in Nigeria that is currently being investigated by
anti-corruption enforcers.

ExxonMobil’s
Nigerian deal

It was
widely reported that in 2009, Mobil Producing Nigeria (MPN), a
wholly-owned subsidiary of ExxonMobil,[ii] agreed to pay $600
million to the Nigerian government to renew its 40% share of three oil
licences.[iii]
The remaining 60% was held by the state-owned Nigerian National Petroleum
Corporation (NNPC).

The
deal secured MPN’s interest in some of Nigeria’s largest oil-producing assets, which
were reportedly contributing around a quarter of Nigeria’s entire annual output
of oil in 2012.[iv]

In June 2015, the Civil
Society Network Against Corruption (CSNAC), a Nigerian public interest
watchdog,[v]
petitioned the Nigerian Economic and Financial Crimes Commission (EFCC) to
investigate the deal, claiming that the Ministry of Petroleum valued MPN’s 40%
share of the licences at $2.55 billion – much higher than the $600 million that
MPN apparently agreed to pay – and that an oil minister
had refused to endorse the $600 million fee.[vi]

CSNAC’s petition also states that a Chinese company had offered to
pay $4.85 billion for 30% share of the same
three oil licences. The company in
question is the oil giant CNOOC, China’s second biggest producer of crude.[vii]

Global Witness sources
confirm CSNAC’s petition was successful and that the EFCC is currently investigating
the deal.

Valuable public
assets

A letter seen by Global Witness that appears to be from a representative
of CNOOC to the Nigerian government states that CNOOC offered $3.75 billion for
a 40% share of the licences.[viii] This
is less than the figure stated in CSNAC’s petition, but is still over six times
the $600 million fee that was reportedly agreed by MPN. The difference is
roughly equivalent to Nigeria’s health and education budget combined.[ix]

The letter, dated July 2015 and addressed to the Nigerian President
Muhammadu Buhari, states that the government recommended a renewal fee of $2.75
billion for the licences – an even higher figure than the $2.55 billion
reported by CSNAC. The letter goes on to say that the licences were renewed by
MPN for $600 million “without recourse” to CNOOC’s $3.75 billion bid.

Media reports also give
conflicting accounts as to the value given to the licences by the Nigerian
government. Some state that MPN’s 40% share was valued at $2.55 billion.[x] Others state
that the $2.55 billion represented the total value of the licenses – i.e.
including NNPC’s 60% stake – making MPN’s share worth $1.02 billion.

Tough negotiations

Another document seen by
Global Witness appears to be a memo of the negotiations between MPN and a
committee of government officials set up to negotiate the deal.[xi] The
memo states that the licences were valued at $2.55 billion, but also shows that
the government was willing to accept a renewal fee of $800 million as its
minimum ‘fall back’ position. However, it is not clear whether the figures in
the memo refer to the total value of the licences, or MPN’s 40% share. If it is
the former, it is possible that MPN overpaid
for the licences.

The memo states that MPN and the negotiating committee met three times
in 2009, in March, May and September. At the March meeting, MPN “was requested
to pay the sum of $2.55 billion”,[xii]
plus fees of $1.2 billion to develop refinery and gas infrastructure.

At the May meeting, MPN stated that it considered the renewal fee should
be in the millions rather than billions, and that it did not expect to be
burdened with additional infrastructure commitments. In August 2009, MPN made
an offer of $75 million to renew the licences via a letter to a junior oil
minister, Odein Ajumogobia.

The memo notes that in view of the huge disparity between the
government’s demand and MPN’s counter offer of $75 million, the negotiating
committee met with Minister Ajumogobia on 4th September 2009 to seek
guidance on how to proceed. The committee was advised to maintain the demand
for $2.55 billion, but to drop the demand for refinery and gas infrastructure
commitments.

According to the memo, at the final meeting held between the negotiating
committee and MPN on 9th September, the company re-iterated its
offer of $75 million. The committee stated this was not acceptable and that the
government’s demand remained at $2.55 billion.

MPN’s approach to Minister Ajumogobia

According to Nigerian press reports,
MPN approached Minister Ajumogobia
with the aim of breaking the deadlock and after a series of meetings (with
which officials it is not known), MPN’s fee was revised to $600 million.[xiii] Global Witness has seen
a letter dated November 2009 from Minister Ajumogobia to MPN which confirms that
MPN’s application to renew the licences was successful, and that a sum of $1.5
billion was set by the Nigerian Government as the gross amount to be paid.

Media reports state that in addition to agreeing a $600
million renewal fee, MPN pledged to
build a 500 megawatt power plant in Nigeria at a cost of around $900 million to
the company.[xiv] While
it is not clear from the letter, Global Witness understands that the power
plant may account for the difference between MPN’s reported $600 million
licence renewal fee and the $1.5 billion figure quoted in the letter.[xv]

It was also reported that MPN agreed to relinquish another Nigerian oil
licence it already had in its possession (OML 69) in order to secure the deal.[xvi]

Nigerians
in the dark over how much MPN eventually paid

In 2011, around 18 months after MPN had apparently sealed the
deal, the Minister of Petroleum Resources Diezani
Alison-Madueke invalidated the licences,
declaring them “null and void”.[xvii]

A key reason for this,
according to media reports, was because Alison-Madueke’s
predecessor, Rilwanu Lukman, who was
senior to Ajumogobia, had refused to sign the licence renewal agreement in 2009.[xviii] The
Nigerian newspaper This Day reported
that Minister Lukman refused to execute the agreement as in his view the $600
million fee was well below the government’s valuation, and that the deal would
deprive Nigeria of the full benefits of the licences.[xix]

A further reason given by
Minister Alison-Madueke for
cancelling the agreement was that the
licences were extended prematurely, some two years before they were due to be
renewed. The government was also said to have been been reluctant to sign new oil
deals or renew old ones until the Petroleum Industry Bill, which was likely to
increase taxes and royalties, became law.[xx]

MPN challenged the government’s decision to cancel the licences,
stating that its rights in the
leases were entirely valid and legally binding.[xxi] In
February 2012, Minister Alison-Madueke
announced that MPN had regained the licenses after months of negotiations,
according to a Reuters report of the deal.[xxii]

According to the Reuters article, MPN
declined to state how much it eventually paid for the licences. Global Witness
searched Nigeria’s 2012 Extractive Industries Transparency Initiative report to
see if the payment was disclosed, but no such payment seems to be recorded in
the document.[xxiii]

It
appears therefore that Nigerian citizens have no way of knowing what the terms
of the deal were, including how much the government received for the renewal of
these valuable public assets, or whether additional obligations were placed on
MPN such as commitments to develop infrastructure.

Mrs Alison-Madueke arrested on graft charges

Conversely, many Nigerians are aware of allegations made in 2014 by
the former governor of the central bank, Sanusi Lamido Sanusi, that $20 billion
of oil receipts had gone missing from the state-owned oil company NNPC while
Mrs Alison-Madueke was in office.[xxiv]

Mrs Alison-Madueke denied the allegations. However, she was
arrested in London in October 2015 as
part of an investigation by the UK National Crime Agency into suspected bribery
and money laundering associated with Mr Lamido Sanusi’s allegations.[xxv]

ExxonMobil’s push to
prevent licence-level payments from being disclosed

At the same time ExxonMobil’s deal
came under investigation, and for several years prior to that, the company had
been lobbying U.S. policymakers to prevent proposed transparency rules from
shedding light on precisely the kind of deal it struck in Nigeria to renew the
three oil licences.

In June 2016, the U.S. Securities
and Exchange Commission (SEC) is due to finalize reporting rules that require U.S.-listed
oil, gas and mining companies to publish the payments they make to governments,
such as taxes, royalties and licence fees, wherever they operate in the world.
Greater transparency will help deter corrupt oil and mining deals, and help
citizens to hold governments and companies to account for the hundreds of
billions of dollars in public revenues generated by the natural resource
industries.

The forthcoming SEC rules,
mandated by Section 1504 of the Dodd-Frank Act, are expected to require
companies to publish payments separately for each extraction licence, project
or concession that they have a controlling interest in. Reporting at this level
of detail is crucial, as it will help deter corruption in the licencing process
and enable citizens to monitor payments from individual projects, which can
reach into the billions of dollars and are vulnerable to corruption.

However, ExxonMobil has been at
the forefront of attempts by elements of the oil industry to prevent the SEC rules
from requiring project-level reporting of payments. Instead, Exxon has been
calling for a ‘compilations’ model of reporting that would permit companies to
lump projects together for the purposes of reporting.[xxvi]
In the majority of cases, this would make it impossible to identify payments
from individual projects or deals.

In addition, under the
compilations model, companies would not be required to disclose their identities.
This would make it impossible for users of the data to link payments to a
specific company and hold it to account. Under the compilations model therefore,
it is almost certain that MPN’s payment for the Nigerian oil licences would not
have been attributable to MPN.

ExxonMobil’s
response

Global Witness approached
ExxonMobil with a request for comment on the Nigerian deal. ExxonMobil responded by stating that it had extensive discussions with
the Nigerian Government to renew the licences, following which an agreement was
reached and legally executed, and that in reaching the agreement ExxonMobil
fully complied with Nigerian law. ExxonMobil also stated that its investments
have generated significant income for Nigeria and promoted economic and social
development in the country.

Questions raised
by the deal

Although
the elements discussed in this document may not in themselves demonstrate guilt
of any crime or wrongdoing by any party, there is a clear public interest in
the disclosure of the details of this deal.
As such, Global Witness welcomes the Economic and Financial
Crime Commission’s investigation as the nature of the deal raises important
questions, including:

What were the final terms and conditions agreed to renew the three licenses?

Were renewal fees and any other associated payments transferred into the Nigerian Government’s Federation Account, or any other account, and if so, how much was paid? Can MPN provide evidence for this?

Why did the former President Umaru Yar’Adua’s government reject a seemingly superior counter-offer from a credible competitor in favour of what appears to be a substantially lower fee from MPN?

How much was MPN’s 40% share of the licences valued at by Umaru Yar’Adua’s government?

What is the status of the power plant that MPN reportedly agreed to build as part of the deal?

If MPN relinquished another oil licence it already had in its possession (OML 69), was it transferred to another entity? If so to which entity, and what was the process undertaken for doing so?

Why did Minister Lukman refuse to sign the initial agreement in 2009?

It appears there was no open tendering process established to renew the licences. If so, why not?

Were any payments relating to the deal disclosed in an Extractive Industries Transparency Initiative report?

[x]
For example, this news article states MPN’s 40% share was valued at $2.55 billion: This Day, ‘FG asked to provide information on renewal of Oil
Mining Leases’, 5 March 2012. Whereas this article states the total value of
the licenses was $2.55 billion: Nigerian
Oil & Gas, ‘Renewed oil mining leases:
in whose best interest?’ 20 December 2012.

Exxon
Mobil is a member of the American Petroleum Institute (API), which filed a lawsuit in October 2012 to overturn the
Section 1504 rule. Exxon Mobil refused to dissociate from the API lawsuit
when asked to by civil society organisations (letter from Exxon Mobil available
on request).